Dr. Ed Yardeni was the keynote speaker on Tuesday evening at the Bank for
International Settlements, in Basle, Switzerland. I've read the speech he gave...it was a
very strong call to action. I was a bit surprised we saw nothing on this yesterday in the
media...but today we see this:
Financiers fight Y2K bug
By Reuters
Special to CNET NEWS.COM
April 9, 1998, 1 p.m. PT
URL: news.com
BASLE, Switzerland--Financial regulators and executives said yesterday that urgent
preparations were underway to avert possible network failures when computers tick
over to the year 2000, a problem that could threaten global finance and lead to a
worldwide recession.
Speaking at a conference at the Bank for International Settlements (BIS) here, New York
Federal Reserve president William McDonough noted that the world's
payment systems, such as clearing organizations, settlement agents, securities depositories,
and others were "intricately connected."
"An operational breakdown resulting from insufficient year 2000 preparations by any one
of them may have an impact across payment systems," McDonough said.
A worst-case scenario could threaten the entire financial system, he added.
"It's a trivial problem, but it's overwhelming," said Edward Yardeni, chief economist of
Deutsche Morgan Grenfell. Yardeni now sees a 60 percent chance of a global
recession due to problems associated with the millennium.
"We have to treat this almost as if there was going to be a war," he said.
The BIS's Committee on Payment and Settlement Systems (CPSS) has set up on BIS's
Web site a reporting forum for payment and settlement systems.
McDonough, who is also chairman of the CPSS, said that, so far, more than 100 systems
had responded.
In the United States, supervisors plan to have reviewed "at least once" by June 30, 1998,
the state of readiness for potential millennium problems at every institution they
supervise.
"Where progress is deemed lagging, we are issuing supervisory letters indicating the
nature of our concerns and requiring corrective actions within specified time
frames," he said, adding that this was just part of a multiyear readiness program. But even
so, the task is still daunting.
"If the current outstanding issues are any indication, we will have our hands very full,"
McDonough said.
Part of the danger lies in the fact that much of the world's money is booked or transferred
electronically and the amounts involved tend to be staggering.
The New York Fed's daily payment settlement activities, for example, total roughly $2.5
trillion dollars, equal to about one-third the U.S. annual gross domestic product.
Contingency plans if computers fail because of a wrong reading of "2000" are also being
put into place. But upsets could involve everything from power grids to air
travel and defense.
Banks are spending hundreds of millions to try to ward off potential disasters tied to the
millennium.
Some conference-goers were purchasing software to run simulated millennium tests, but
not all were confident the software gave an accurate simulation.
Others have purchased new computers and are sending out hundreds of queries to see if
counterparties are prepared.
Some 20 international banks yesterday also announced a new initiative to tackle the
problems jointly, forming the Global 2000 Coordinating Group.
Tim Shepheard-Walwyn, chairman of the group and head of group wide risk identification
activities at Swiss Bank, said banks want to share expertise.
"I don't think any of us can regard money as a primary constraint on dealing with this
issue," he said.
"But this is not a matter of throwing money at the problem. It is actually about accessing
the people who know," Shepheard-Walwyn said.
Such private efforts are needed, authorities say.
Tom de Swaan, chairman of the Basle Committee on Banking Supervision and executive
director in charge of banking supervision at the Dutch Central Bank, said it
would be impossible for the group of ten regulators (Belgium, Britain, Canada, France,
Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, and the United
States) to guarantee a bank or financial institute is ready for the millennium.
"I think we have been increasing the awareness as much as possible," he told Reuters, but
added: "You cannot completely ascertain a bank is ready."
"The burden is primarily on the private sector." |
